The Office of FairTrading has launched a major investigation into the corporate insolvency sector.

The watchdog has concerns over the high cost of bankruptcy in the UK and fees charged by practitioners. Now it plans to scrutinise the structure of the market and anything which "could result in harm".

The OFT told Business7 the remit for the enquiry may include conflict of interest where firms can sometimes act in an advisory capacity to lenders and borrowers. Garry Clark, spokesman for the Scottish Chambers of Commerce, welcomed the investigation.

He said: "I can see why the OFT would want to take a look at the insolvency process because businesses and creditors may not be getting the best deal possible from the process."

David Watt, of the Institute of Directors Scotland, said: "All institutions need to be doing more to help businesses at the moment, including the advisers and lenders and the Treasury because so many good businesses have been allowed to go to the wall that simply shouldn't have.

"We welcome the OFT investigation, but it has to be comprehensive, and there is a need to stimulate competition in the accountancy industry."

Insolvency practitioners can charge hundreds of pounds an hour which has raised concerns about the cost of going bust in the UK compared to other countries.

A recent World Bank report suggests the costs of closing a business in the UK is higher than other countries with similar or better recovery rates.

Clive Maxwell, senior director at the OFT, said: "We want to identify any potential problems within the corporate insolvency market to ensure firms and practitioners are competing freely and the market is working well for the end consumers. Efficient insolvency services are an important component of a modern market economy.

"This investigation has been launched due to concerns raised by government, the insolvency service and the industry itself, which has mainly been levelled at the fees being charged by insolvency practitioners."

Ken Pattullo, Scottish regional partner for corporate recovery firm, a Begbies Traynor, said: "There is a clear conflict between the big four accountancy firms dealing with its audit clients and then on the other hand advising the banks in relation to those audit clients, and we would hope the OFT addresses these issues as part of its investigation."

There are now more than 1,800 licensed insolvency practitioners operating in the UK.

The big four firms - PricewaterhouseCoopers, Ernst & Young, KPMG and Deloitte - plus smaller practices have seen workloads swell as the economic crisis caused trouble for thousands of companies.